Healthcare recently broke out of a neartermed triangle. I blogged on this potential a couple of weeks ago – here. Will the breakout be sustainable? Trump’s policies for healthcare may (or may not…) be positive for the healthcare sector, and most of us are best not to guess how that game plays out. Instead, I’d rather look to the charts for some guidance.
Below is the neartermed (daily) chart for the S&P Healthcare index. You can clearly see the triangular breakout – but note too that the sector is short termed overbought – according to stochastics and RSI. Longer termed momentum indicator MACD is not rounding over – suggesting that the longer termed picture remains OK – from a momentum perspective – at this juncture. So, from a neartermed perspective, the sector might pause or pull back a bit. However, the longer termed picture does not present a major sell signal for those currently in the trade.
As you will note on the weekly chart below, the S&P Healthcare sector needs to break about 860 and remain above that level. Such a break would ideally last for a few weeks to verify a move out of the long termed symmetrical triangle consolidation it has been stuck in since 2015. As I write this blog, it’s not too far off of the 860 level (last weeks close was just over 850). That’s encouraging.
I’d be inclined to buy into the sector should it definitively break 860 and stay above that level for a while (i.e. a few weeks). Given the neartermed overbought status, I’d think that such a breakout may be momentarily delayed. The recent move has been encouraging, but the safest route on this play is to wait a while and see if the bigger (weekly chart) triangle can break before committing.